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Discounting, the GroupOn way

Considering that the group buying space is highly cluttered already, how will GroupOn make a disruptive difference?

Virat Bahri 27 November 2012

 Group discount site Groupon has been struggling to stay in the black and impress shareholders. In the quarter ending September 2012, the company posted revenues of $568 million (a growth by 32% yoy) and a loss of $3 million ($54.2 million for the quarter ending September 2011). The growing clutter in its home market (US) and the general view of many vendors that group buying sites are not as lucrative as they seem are ostensibly the main reasons why the company is facing such trying times. Considering the same, the prospects of the company in a market like India would be definitely crucial to its long term sustainability. The company recently got the rights to use its own name in India after a long patent battle, and will now look to promote itself in a big way. But can it really make the cut here?


'More for less' is a cherished end goal for customers everywhere, and we Indians are particularly known for the way we go about achieving it. By that logic, the future of group buying sites like Groupon and competitors like Snapdeal, Timesdeal, Mydala, et al in India looks to be more or less assured.


However, that is a very simplistic answer to a rather complicated question. Firstly, one has to consider the very basis of the business model that enables such discounts. Group buying sites approach the merchants offering products and services and give them the option of providing such steep discounts on their products. These merchants can be of different types. Firstly, you would have relatively obscure brands like a beauty parlour that is looking to promote its services. They may offer such a steep discount to attract customers and hopefully look for repeat business. But would customers who come to such outlets for just the deal come back to pay the same amount for the full service? That prospect sounds highly unlikely. The other logic is that they may be offering such steep discounts because that's what is the right price of the service. In that case, the steep price that is shown on the site may actually be misleading and a customer may experience a service far inferior to what he has been expecting. This is also the case when you look at merchants who are looking to offload surplus inventory. That reminds me of a Reebok kit with shoes, sunglasses, watch, bag, et al being offered at a steep discount. The deal appears at many places and is a clear ploy to rid Reebok of surplus inventory. It is similar to store clearance sales – the product may not be defective, but it's look, style and appeal is certainly not up to the mark (which is why it lands up in a clearance sale in the first place). That makes these sites more of a 'less for less' proposition, which may ultimately turn customers away.


Groupon India claims, on the other hand, that it has a very different approach to group buying. Ankur Warikoo elaborates on what he feels are the key mistakes that competitors in the space have made in India so far in an exclusive with 4Ps B&M, “Firstly, they ignored the fact that the business of deals is always about merchants and not about customers. They went after customers with aggressive marketing strategies, but did not concentrate on getting the right merchants. The second point is that it is very critical to be solving a business problem.” He gives the instance of Oberoi Hotel. While it would not be interested in discounts that go against its premium positioning, the hotel could definitely be interested in a deal that would get more customers to its coffee shop in a lean period, say, 4 pm to 7 pm. That kind of deal does not mean a cheap product, but more of the happy hours concept, which has been used to good effect by a number of eating and drinking joints already. In all, Warikoo claims that the most important factors they consider are the deals and the merchants, and they would not mind being perceived as low discounters. In contrast, they would like to be known for connecting consumers to quality deals. It's no denying that they will be able to compel people to try offers. However, the real key to long term success will be whether GroupOn can differentiate itself enough to get loyal customers who are hooked on to its deals, and also on whether merchants that it is targeting continue to see value in the association.

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